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Five steps to create a more accurate cash flow forecast

Maintaining a positive cash flow is crucial for every business, but particularly for start-ups and SMEs. In fact, more small businesses fail due to cash flow problems than for any other reason. So how can you make sure you don’t fall into the trap? Here are five ways to protect yourself.

1 Look at the broader picture with a cash flow forecast

When compiling your cash flow forecast, you need to consider other factors, such as your projected sales. If you have a major deal lined up, it could transform your cash flow – and not necessarily for the better. That’s because you may need to invest to bring the customer on board: paying for marketing, stock or new people before you get paid. Factor in every possible variable and you won’t encounter any unpleasant surprises.

2 Look at the timeline

Once you know what’s about to happen, you need to know when. Forecast your income on a weekly or monthly basis and build this into your cash flow projection, though don’t be too optimistic – taking on a new customer doesn’t guarantee you’ll get paid on time. Even if you’re lucky enough to find a fast payer, your cash flow will still get worse before it gets better.

3 Factor in all your expenses to the cash flow forecast

A good cash flow forecast accurately records anticipated expenses and their due dates. If you maintain a detailed budget, you can simply feed the figures in, making your life far easier. Make sure you’ve included both your fixed and variable costs and that you’ve made realistic provision for any unexpected expenses.

4 Keep on top of credit control

There’s no point in compiling a cash flow forecast with payments recorded on the due date then failing to collect those payments. Late-paying customers are the number one cause of cash flow problems, so put a clear system in place to chase up overdue debts. You could also introduce a small discount for faster payment or an interest penalty for missing the due date. In addition, consider an invoice factoring and discounting service, which allows you to borrow up to 85% of the value of your invoices as soon as you issue them, with repayment being made when your customers pay you. With factoring, the provider takes control of your debtor ledger and use our experienced credit control professionals to secure rapid payment, thus minimising the interest you pay, whilst with invoice discounting you retain control of your own debts.

5 Don’t forget to update your cash flow forecast

There’s no point in compiling an all-singing, all-dancing cash flow forecast then failing to update it as circumstances change. By constantly tracking progress against your projections, you can spot patterns and trends and constantly make your forecast more accurate and more infallible.

As we’ve already mentioned, invoice factoring and discounting can be an excellent way to tame a troublesome cash flow. However, emergency business loans can also be extremely helpful if you hit an unexpected hiatus – in fact, money can be in your account in under 24 hours using an alternative lender.

By Carl Faulds | 7th March 2016

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